Inflation rises to 4%

The UK Consumer Prices Index (CPI) annual inflation rate rose to 4% in January, up from 3.7% in December, as the effects of the VAT rise were felt.

Higher oil prices also meant inflation remained well above the 2% target.

Retail Prices Index (RPI) inflation – which includes mortgage interest payments – rose to 5.1% from 4.8%.

Economists believe Mervyn King, the Governor of the Bank of England, was preparing the way for interest rate rises in his obligatory letter to the Chancellor, explaining the price rises, yesterday.